The recent ruling by the Authority for Advance Rulings (AAR) in Telangana has significant implications for Indian IT, marketing, and consulting firms that provide services to international clients. In this ruling, the AAR determined that services provided by Indian companies to foreign clients may not always attract integrated goods and services tax (IGST), depending on the nature of the services.
The case in question involved referral services provided by the Hyderabad-based Center for International Admission and Visas (CIAV) to foreign universities and colleges for admitting Indian students. Despite not having a binding agreement for guaranteed admissions, the AAR classified these services as exports rather than intermediary services. This distinction is crucial because intermediary services would attract IGST, whereas exports would not.
According to Sandeep Sehgal, a partner at tax and consulting firm AKM Global, this ruling could have far-reaching consequences for various industries that serve foreign clients, particularly in IT, consulting, marketing, and recruitment. The decision establishes a precedent for how services provided on a principal-to-principal basis should be classified under GST regulations.
The AAR’s ruling emphasizes that services provided to foreign clients on a principal-to-principal basis, such as consulting, IT, marketing, and recruitment, should not always be considered intermediary services. This clarification provides greater clarity for businesses engaging in cross-border transactions and may lead to a broader interpretation of GST regulations in similar contexts.
